Schroder Real Estate Investment Trust Limited (SREI) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Schroder Real Estate Investment Trust Limited Investor Presentation. [Operator Instructions] Before we begin, we would like to submit the following poll. I would now like to hand you over to Fund Manager, Nick Montgomery. Nick, good afternoon, sir.

Good afternoon, Jake, and good afternoon, everybody else. Thank you very much for joining us on another hot afternoon. Your attention is appreciated. So as Jake said, Nick Montgomery, I'm joined with -- by Co-Manager, Bradley. So we're here, obviously, firstly, to give you an overview of our results to 31 March. These are slightly later than previous years, partly in connection with the ongoing proposed consortium offer for Picton. I'll come back to that in a moment. But we'll follow our usual format. I'll give you an overview of the results, a bit on the market and then I'll probably then provide a bit more context around how we're implementing our strategy and where we see the outlook in terms of further activity and impact on income. So moving to the summary. I guess that the header remains unchanged, I'm pleased to say, and that we continue to enjoy a high income return that we're growing, and we continue to benefit from a low debt cost, and we think both of those things certainly set in the context of the Picton proposal, provide a platform for accretive growth. Just to draw your attention to a few points. Obviously, we have seen the share price weaken. Interestingly, I think that's largely down due to the Iran war than any other factor at the moment. Market sentiment has changed in light of that, and we're obviously all hoping for a resolution in due course. And we remain optimistic about the outlook for the real estate market, albeit with the sort of the recovery can -- continuing to be kicked down the road because of the geopolitical uncertainty and of course, some domestic uncertainty, certainly looking ahead to the first Burnham budget. But with that, we still think our shares are good value. You can see there the 7.8% dividend yield, give or take on today's share price and a continuing commitment when sustainable to maintaining a progressive dividend policy. And perhaps it's just worth stepping back, noting that since 2019, and, in particular, the refinancing that we did with Canada Life back then, we have actually seen a 38% increase in our dividends and over the most recent year-on-year, a further 4% increase in the dividends paid over that yearly period. Looking forward, we continue to have what we think is an attractive reversionary yield, so our reversionary yield of over 8%. So for those less familiar with property jargon, that's the yield that reflects what the valuers think the portfolio rental value would be if it was all available to let today, divided into the portfolio valuation. And that's a 200 basis point premium over the equivalent MSCI peer group comparison portfolio. I guess just to put it into even more focus in pound notes, so compared with our rents and that reversionary rent, that's about a GBP 8 million differential. Now you never get all of it. But obviously, with our active management, we'd hope to deliver the best we can. That compares with a dividend of about GBP 17.6 million annualized. So you can see even if we just get half of that potential reversion, it would have a material impact in terms of growing earnings and hopefully growing further dividends. As I've noted previously, the balance sheet is very strong, a very low debt cost, 75% of our debt, as you know is fixed at 2.5% for 10 years, so that genuinely is peer group leading. But obviously, with the impact of the conflict in the Middle East, the shares have sold off of that 24% discount to NAV, albeit as I say, with -- at some point, we believe, a market recovery, which for reasons I'll come back to you shortly. Good progress implementing the strategy, and then Bradley will continue to give examples of where we are delivering our brown to green and how that's translating most importantly, into higher rents and in turn, higher earnings. Now, point 6, there's a lot of work going on behind the scenes. And for those that do follow us closely, you would have seen last week, coinciding with the year-end results, an up-to-date 2.4 announcement to the stock exchange, which reconfirms the Picton Board's support for the proposed consortium offer for Picton Property Income. As I say, we've laid out previously what we see as being the key principles behind any form of M&A activity and in particular, earnings accretive and strengthening the balance sheet and delivering increased scale and the benefits that flow from that. And we have real conviction that the proposed consortium offer delivers exactly that. Now I appreciate frustratingly, because of the nature of the process under panel rules, we can obviously only comment on what's in the public domain. And the recent 2.4 announcement gives us much information as we can at this stage. I am sure we will have some questions. We will do our best to answer them, but noting that we are limited to what we can say in line with the panel rules. But nonetheless, we are excited. We think it's a great step forward, and we've got conviction that it delivers on the promises in relation to M&A that we've set out previously. Now moving to portfolio activity, another period of significant activity across the portfolio, and Bradley will talk to some of the activity, 71 letting transactions since the start of the financial year, continuing to deliver rents either through renewal or rent review or lettings that are ahead of the previous rents and on average, above the independent value assumptions for rents at the point of those deals happening. Really positively and some of the impact we saw coming through the financial year, but also looking forward, we had a meaningful reduction in our portfolio void rates. Now that's calculated by taking the rental value of the void space as a percentage of the overall portfolio rental value. And that went from about 12% 12 months ago to just under 10% at the period end -- a year ago rather, I should say. And obviously, activity continuing, which we hope will see that void trend down. It is worth noting that in a portfolio where you have over 300 tenants, you've always got income coming in, coming out. And so as I say, we hope that void rate will trend down with that activity. And again, more on that in due course. Now from a portfolio weightings perspective, we have seen in a positive way a continued increase in our exposure to multi-let industrial to retail warehousing. And you can see there almost 2/3 of the portfolio allocated to those areas. We obviously have commented before on how we're seeing polarization across the office market, and it remains polarized. Interestingly, parts of London, we think, are showing signs of recovery. Our asset in Bloomsbury, which Bradley will talk to, we think is a really interesting area. In other areas, obviously, where we have high vacancy, where assets are being repositioned, the higher nonrecoverable costs associated with offices, service charges, business rates, refurbishment costs can have a negative impact. And we see a little bit of that in terms of net income. But overall, we have a clear plan for managing that risk. And as I say, we are overweight to the parts of the market that we continue to believe will deliver higher returns. In that vein, we were delighted during the financial year to be awarded for the second year in a row, the MSCI award for the best long-term risk-adjusted performance, not just for the U.K., but also for the whole of Europe. That was a 10-year return. And so we're delighted that was driven obviously by asset allocation, having the higher industrial weightings over that period, but also the active management going on at portfolio level across the team. Now we also continue to focus on best-in-class governance. And obviously, over the year, the company has begun to benefit from the reduction in manager fees, partly as a result of obviously the shift to having 50% of the fee linked to market capitalization, which increases alignment. We're also delighted to announce last week that in line with the best-in-class governance, the fact that our Chair had come to his 9 years, and we've got great support from Alastair over the period. Alastair announced he'll be stepping down in September. Priscilla Davies, our SID will step up to become Chair. We're also delighted about that. And the Board position that will be, therefore, be made available has been filled by Richard Dakin. Richard is a very experienced non-exec director, very long-standing real estate experience at Lloyds Banking Group, more recently, the Global Real Estate Group, CBRE. Richard's nonexecutive experience extends to 9 years at Derwent London, and he's currently a Director of Berkeley Homes. So we're delighted to have an announcement, and we're looking forward to working with Richard going forward. Now a little bit on the numbers. So compared with what we reported last year and reflecting weaker sentiment towards real estate markets and capital markets more broadly over the year, we saw a slowdown in the NAV total return. So positive total return of 4.8%, but that also had a negative impact in terms of the NAV falling about 1.1% over the year. Just for context, that compared with about 11% over the previous year. As I say, the main driver of that was a small fall in the underlying property values, reflecting that sentiment. What we also did, and it's obviously partly reflecting the fact that we're announcing the year-end results slightly later than normal is that we were able to announce the quarterly unaudited portfolio valuation movement from March to June. And we're pleased off the back of some of the asset management that we have been doing. We saw the portfolio value increase slightly, albeit once adjusting for capital expenditure and costs associated with the smaller adjoining ownership acquisition that we completed, the net movement was about minus 0.3%. So although a small negative movement, we are actually quite happy with that, and we think that will compare quite favorably to the benchmark peer group when we see that come through over the next month or 2. You can see here, capital expenditure, we continue to invest in our assets and have a number of projects ongoing that Bradley will talk to later on. But the net result of all of that is an NAV of 60.9p, noting again that obviously, that excludes the positive fair value of our long-term Canada Life debt. Were we to mark that to market, which we can't do, but if we were to in line with an interest rate derivative, because of its very low cost compared with where rates remain, that would have a positive impact on the NAV of about GBP 19 million. Moving on to the income statement. A few moving parts here. I noted at the start, obviously, the dividends paid over the financial year were 4% higher than the dividends paid in the previous year. Just moving down the P&L, rental income from the direct portfolio was up 3%. Share of net income, so that's after deducting expenses we report joint ventures on a single line, income was down. That was partly down to planning expenses in relation to the asset we own in Store Street in Bloomsbury, where we've made real progress at Camden in establishing development principles that we hope will allow us to maximize sale proceeds as and when we sell that asset, but it also reflected some vacancy costs at City Tower, where we have a very clear plan to manage our vacancy and actually hopefully sell that asset over the next couple of years. Moving down, property operating expenses. As I noted, there's a lot going on behind that number. Firstly, in the latter part of the year, we have seen a reduction in the void rate, including post year-end. During the year, we carried a slightly higher vacancy, which is why you can see there we had the elevated property operating expenses. Within that GBP 4.3 million, we also had about GBP 800,000 of bad debt write-off. That related to a prior period or the majority of that, I should say, related to a prior period. Very positively, rent collection rates for this most recent quarter, and we expect going forward have been approaching 98%. So that was one situation where we have taken the write-off this year. So in summary, small reduction because of those expenses and the write-off in EPRA earnings about 3%, but nonetheless, having the confidence to continue increasing the dividend year-on-year. And as you'll hear very shortly, good visibility on further earnings growth through active management activity. Now one of the reasons, I guess, we can focus so much on that active management and growing the top line earnings is because we have a great visibility on interest costs. So you can see here on Page 6, just that representation. So the most important point to note here is that Canada Life loan, which remains at GBP 130 million, fixed cost over the next 10 years of 2.5%. We then have what we describe as a more tactical revolving credit facility with the LTV, you can see there at about 36.8%. So we're very comfortable with that. We are, however, continuing to sell smaller assets. You'll have seen the results. We sold six assets over the financial year, and we have more in train. Those proceeds when sold, will look to reduce the net LTV back in line with our strategic range of 25% to 35%. One point to note just in relation to the proposed Picton transaction. One of the benefits of that deal is we are buying an asset and a loan where in aggregate or when blended, our portfolio loan-to-value goes from about 36.8% here to around 32%. So that's my reference upfront to the Picton transaction supporting the balance sheet even further. Performance. So as I noted, long run, performance remains very strong, award-winning over those 2 years. Over the 12 months, partly just because of a little bit of a downward movement on some of our offices. So for example, the Store Street asset Bradley will talk to dropped about 2% over the year. We also saw a movement -- negative movements of City Tower. Over the 12-month period out to March, performance slightly below the MSCI benchmark. off the back of that very strong long-run performance. More positively, I guess, is particularly in an environment where we expect rates to remain a bit higher, we continue to have that really important head start on income. So our income return there, you can see about 5.4%, which compares to the benchmark of about 4.8%. So a really important head start there. Now on the market, you'd be forgiven for thinking this is the same slide that we presented last time we spoke. It does feel a bit groundhog day. But as I say, we are dealing with uncertainty arising from, in particular, the situation in the Middle East. But of course, we are dealing with our own domestic uncertainty in the run-up to the Burnham budget later in the year. Notwithstanding all of that, from a fundamentals perspective, we think the real estate markets are well placed despite that uncertainty. And this is really set out clearly in these four charts. Firstly, on the top left-hand side, although clearly, there is uncertainty, markets -- real estate markets have already experienced a significant correction in values. So most of the main sub-groups in real estate have fallen between 20% and 25% in contrast to other parts -- other cycles where we may have this uncertainty where we haven't had that correction. So that does provide, we believe, some protection. I think most importantly, and particularly compared with past cycles, where we've had that sort of uncertainty, rent in nominal terms continue to go up. As you've heard me summarize, but also Bradley will give you some more detail. We are continuing to deliver leasing transactions, obviously ahead of previous rents, but importantly, ahead of the value of rental assumptions. And where we are investing in those assets, particularly with that brown-to-green approach, we're delivering rents, in some cases, materially above the independent values assumptions. Why is that? Well, firstly, I think the underlying economy perhaps is stronger than the headlines might suggest. Companies still need space. We are seeing a pickup in terms of returning to the office. Parts of the economy are holding up pretty well. And most importantly, on the bottom left-hand side, construction costs mean the supply pipeline is highly constrained across most sectors now, supply of new build accommodation coming through is really limited. And as you can see on the bottom left-hand side, there is a really nice correlation between construction cost inflation and rents, and that is what we are seeing play out. And the bottom right-hand side just illustrates the real shortage of high-quality, particularly sustainability certified space. And again, from a climate perspective, from a sustainability perspective, we are going to see an increasing regulation in relation to real estate, which means that build costs are only going to get higher and higher, which means that existing assets well positioned that can be improved, we think have the potential to offer attractive returns and rent growth, particularly where you've got a specialist capability to deliver those asset improvements. And with that, I'll hand over to Bradley.

Thanks very much, Nick. Good afternoon, everybody. Thank you for joining us. We've got some interesting portfolio updates to talk through shortly. But first, I'd just like to touch on the strategy. Now alongside the usual real estate fundamentals that Nick spoke to earlier, we do focus on sustainability as well. And that's purely because we think that, that will help us deliver better long-term total returns for our shareholders. And we've got some interesting case studies of this in action as we walk through the presentation. And first, I'll start with Stanley Green Trading Estate in Manchester, which you can see on the right-hand side of the slide. We have successfully implemented the strategy here. We spent GBP 9 million developing 11 new units at EPC A+ plus compared to sort of B, C, D on the rest of the estate. And we've achieved rents that are 39% higher on the green units versus the older brown units. Now some of that premium will be because the units are newer and look nicer, but we believe that there is a green premium element to that as well. Now not only are we getting rents that are 39% higher, but we're achieving a keener valuation yield on those units. And that essentially means that we get more value per unit of rent as well as more rent. Now the question is, that's great. You've got higher rent, but has it worked out from a returns perspective? Well, I think the numbers on the slide are very emphatically saying yes. So we've achieved an unlevered total return over the approximately 5 years we own the asset of 14.6% per annum, and that compares to 7.9% per annum for the MSCI all Industrial benchmark. So really strong outperformance there. Now looking into a bit of detail as to the letting activity we've been up to through the financial year or since the start of the financial year, we've made great progress. As Nick said, we brought the void to its lowest level since 2022. And since the beginning of the financial year, we've done GBP 6.3 million of new lettings. And encouragingly, in aggregate, those new lettings were ahead of the opening ERV. So when Nick spoke earlier about the reversion in yield, the question we often get asked is, well, is that achievable? Well, the lettings during the year show that not only is it achievable, but we are achieving it right now. Looking at renewals and rent reviews, they were 24% ahead of the previous passing level, which is again encouraging. And I think that speaks to the quality of the assets that we own, noting that 66% of the portfolio is allocated to industrial or retail warehouse and most of that industrial or multi-industrial estates. And as Nick outlined earlier, we think there's really favorable occupier supply and demand dynamics playing out in those sectors. And it also speaks to our active approach. We did complete the sales of 6 assets, totaling GBP 13.7 million. This is in line with our strategy to reduce net LTV, and it also is in line with our strategy to focus on holding larger assets that have inherent value-add opportunities for us to go in there, apply our active approach and add value to the assets and noting that four of the assets were ahead of book value when we sold them and two were below, that gives us confidence in our portfolio valuation and the NAV of the company. Finally, on this slide, I'll just touch on costs. Our ongoing charges for the year were 1.31%. We think that's very good. It compares very well against peers. And also noting that during the year, we did amend our management fee calculation. So now 50% of the fee is based on the market cap of the company and 50% based on NAV, whereas previously, it was 100% based on NAV. The reason for the change is to enhance alignment between the manager and shareholders so that we experience the sort of share price move in the fee we get paid. Now that fee only became effective halfway through the financial year, so from the 1st of October. So that means shareholders will benefit from a full year of saving in the financial year we're currently in as well as that enhanced alignment between the manager and shareholders. Now I'd like to touch on another case study, and this case study is based on Millshaw Park Industrial Estate. And this is actually our second largest asset by value. It's valued at GBP 52 million at the end of March. But taking a step back and just thinking about the asset, it's been a very strong performance since we acquired it in 2015. It's delivered an unlevered total return of 12.1% per annum, and that compares to 9.5% for the MSCI all Industrial benchmark. This asset is almost 0.5 million square feet. It covers 28 acres, and it's strategically located just south of Leeds City Center. So it's a very urban location, and it's very close also to the M62 motorway. Now this will be or is one of the largest industrial estates in Leeds. Now interesting on Leeds, it is very tight in terms of industrial supply. So the vacancy rate in Leeds is around 3.6%, and that is much lower than the national average, which is around 5.7%. And it's that tight supply, which has helped us to grow rents and to deliver that sort of long-term strong performance from the asset. What we see looking forward is an opportunity to apply the strategy as we have done at Stanley Green to generate even further rental growth and further valuation uplift. So with that, we'll look down the right-hand side of the slide. And first point out, we made a small acquisition post year-end, we acquired 3 adjoining units for GBP 2 million. That reflects a net initial yield of 6.4%, which is very favorable compared to the net initial yield of the overall asset of 4.9%. And I'm happy to say that the valuation has been increased to June. So it's up to GBP 2.1 million already, which is encouraging. There's opportunity with these three units to apply the strategy, so we can undertake value-add initiatives to refurbish the units. There's opportunities to add more space on some land to the side of the units we've acquired and overall grow the rents that we get from these units over time and hopefully add some value to them as well, targeting a double-digit yield on cost. In the center, on the right-hand side, there's a couple of images before and after of Unit 22. This is a 50,000 square foot unit. During the financial year, we undertook an extensive refurbishment of the asset. So you can see slightly the sort of before and after there. It's much shinier and new with PV panels on the roof on the right-hand side. So we spent GBP 1.9 million on that refurbishment, and we have exchanged an agreement for lease with Padel Slazenger Clubs at a rent that is 86% higher than the previous passing level before we did the refurb. And as a result of the refurb, we've achieved an EPC A. It was previously an EPC C. So good progress there. Again, the question might be, well, you spent the money, you've got a higher rent. Was it worth it? Well, we've made about GBP 1.5 million in profit on this initiative alone. So yes, absolutely, again, emphatically, yes, a really good application of our strategy. Finally, on the slide, on the right-hand side at the bottom, you can see an image of Unit 11. We've got a similar opportunity here to replicate what we did with Unit 22. So we're getting this unit back in September this year. We'll be undertaking an extensive refurb and we'll be looking to increase the rent that we're achieving by at least 50%. And again, that will deliver a double-digit yield on cost. The third and final case study I'd like to touch on with you today relates to the University of Law Campus. This is located in -- on Store Street, which is in Bloomsbury. It's about 400 meters north of the Elizabeth Line station at Tottenham Court Road. This is a fantastic location. It's in the Knowledge Quarter, really good transport links. And the first point I'd make about this asset is we're very confident in its valuation. So the net initial yield of this value of GBP 37.8 million is 5.8%. And there are fixed uplifts in the lease that we have, the University of Law. So they're committed to the site until the end of 2029. And between now and December 2028, their rent would increase by 9%. Now what that reflects is a running yield of 6.4%. So you take that net initial yield from 5.8% all the way up to 6.4%. We think that valuation is very attractive given what we're seeing occur in the local market and across London more broadly. We own two freehold buildings on this site, which is quite rare for Camden to own freehold buildings. It's 0.8 acres, which is again quite large in the area. And the lettable area across those 2 buildings at the moment is 85,000 square feet. Now during the year with this asset, we've been through a very comprehensive planning process to establish the prospects of delivering a largely new build scheme when we were -- or just taking a step back, we're looking to -- we thought the best path forward for this asset is to redevelop, whether that's us to do the redevelopment or to sell it to a developer. We think that's the best route to create value in this asset in the longer term. And in the images on the left-hand side, you can see the current asset in the top left and a CGI of what it could be in the bottom left. Now to get from the top to the bottom, it'd be a lot of work to do. So what we've been focused on is the planning element. And what we need from Camden is some -- to agree some principles around how we might redevelop the asset. So what we've been focused on is getting their sort of blessing to undertake a very comprehensive redevelopment where we deliver a largely new build scheme. So it would retain some of the existing asset, but we would largely deliver a new build scheme. That will enable us or a developer to remedy existing building constraints, which include low floor to ceiling height, the location of the core and the lifts and the services, et cetera, get rid of some columns, that sort of thing, so you can deliver a better building for occupiers. Also getting permission to increase the massing. So for example, there are -- there's a courtyard just behind the images you can see. So you can fill that in with more lettable area, and you can also add floors to again increase the lettable area. And finally, but equally as importantly, we are looking to lift restrictions on use class. So what that means is a developer or us, once the asset has been redeveloped rather than being restricted in what you can use it for, you just have more flexibility to let to what you feel would be the highest value. And that brings us on to the next slide, which -- it's a lot of detail here, no need to sort of read it right now, but you can take it away and look at it. But we're currently receiving GBP 60 per square foot in rent. In fact, we'll be in GBP 60 in the future, and that's from a university tenant. Now what we're seeing for high-quality office tenants in the location are rents of around GBP 150 plus. And we manage some of the buildings that we're showing on this slide, and we have achieved in other strategies, rents of GBP 135 per square foot. So what that sort of gives us confidence on is if we do develop the asset, you can more than double the rent. You could do 2.5x on the rent going from GBP 60 up to GBP 150 plus. And that underpins the developer's appraisal. So it gives them confidence to say, okay, once I've done my project, I can get a much higher rent. Final slide from me. We spoke about the reversion. And I wanted to kind of bring some color to that. And this is illustrative and it's based on cash. So on the left-hand side, you see our current cash passing rent or as at the 31st of March '26, that's GBP 31.2 million. And then on the right-hand side, you see the reversionary rent, which is what the independent value, I think the market level rent is across our portfolio. That's GBP 39.3 million. And what we've shown here are some sort of simple steps on how you get from GBP 31 million to GBP 39 million. First of all, there are fixed uplifts in our existing leases up to GBP 1.8 million in the next 12 months, so through to March '27. They're contractual and they will occur. The next red bar, positive GBP 0.9 million. That's five agreements for leases that we've exchanged. So we have an agreement for lease. There are usually some conditions you have to fulfill before the lease completes. And it's only once the lease completes that we start to recognize income in our financial statements. The conditions are usually planning consent or landlord works being completed. So we have a number of AFLs here, including the Slazenger Padel Clubs, which is almost GBP 0.5 million of that GBP 0.9 million that I discussed at Millshaw. So as they complete and we expect imminent completion for most of that GBP 0.9 million, we will be able to recognize the rent in our accounts. But interestingly, we've already spent most of the CapEx associated with these leases. So we've incurred the cost in our financial statements, and we're only going to start to incur the income in the future -- in the near future. GBP 1.6 million refers to space in our portfolio that's currently let at levels that are below the market rent. And that's because sometimes you lock rents in for 3 or 5 years or longer. So as rent reviews and renewals come around, we expect to push the rents on. And if we think back to the slide where we looked at our renewals and rent reviews during the financial year, which were 24% ahead of the previous passing level, again, that gives us confidence that we can achieve this GBP 1.6 million. Finally, there's vacant space in the portfolio with an ERV of GBP 3.8 million per annum. Now with our strategy, we do expect there to be some vacancy, but we do think we can reduce that from the current level. So at the end of March, it was 9.8% which already reflects a low since 2022, which is fantastic. But we do think that over the coming year, we can reduce that 9.8%. So we expect to get some more rent of this GBP 3.8 million. Now taking a step back, the difference from GBP 31 million to that GBP 39 million is around GBP 8 million. That compares really favorably to the annualized dividend today of GBP 17.6 million, and we only need to achieve some of that GBP 8 million to start to have a good impact on the level of our annualized dividend. So I'll pause there and hand back to Nick and happy to take any questions and encourage you to submit as many as you can. Thank you.

Fantastic. Thanks, Bradley. And we have got some really good questions, which we'll endeavor to answer as best as we can. I guess just before we do, just wrapping up, as I've touched on, we have had some increased market uncertainty due to the Middle East conflict, but we do expect sentiment to improve as that hopefully settles and we move into next year. We do feel very happy with our portfolio weightings, and I'll come on to how the proposed Picton transaction impacts those in the Q&A. We have a highly efficient cost base, obviously, with -- particularly with the fee changes that we've made recently and a sector-leading debt profile, which does give us that great support for earnings. And obviously, that's allowed us to increase the dividend by about 38% over the course of the last 6 years or so. We have lots of pipeline activity that Bradley has spoken to a little bit of, which hopefully gives you visibility that there is more opportunity to come. And I guess in aggregate, all of those things combined have put us in a position where we believe we can deliver a really compelling M&A option with Picton that is consistent with our M&A principles that we set out previously of delivering near-term earnings and dividend accretion for our shareholders within SREIT. So I'll pause there. I'll hand back to Jake before we then move to Q&A.

[Operator Instructions] But Nick, Bradley, at this point, I'll just hand back to you to address those where appropriate, and I'll pick up from you at the end. Thank you.

Great. Okay. Thanks, Jake. And as I said in the introduction, we can obviously answer as best as we can, but having regard to the fact that we must unfortunately stick to the detail that's in the announcements relating to Picton. I should also say -- where we don't feel we can answer questions on the line now, we will take those away. And if we are able to provide more clarity after the event, as we did after the last presentation, we will upload those answers to you through the platform. Just looking at the questions, there are a number of questions that talk to the movements in the share price over the course of this year and are drawing a comparison between other companies in the peer group. I guess it is worth noting actually if you go back and look at the movements in the share price, obviously, the Middle East war commenced late February, and that did lead to a sell-off in the broader listed real estate markets. The announcement that we made [ slight unhelpfully ] really is at the end of that initial fall in the price. So 15th March, it picked back up to [ 51 ]. But again, with the continued uncertainty, it has drifted down. There are exceptions, of course, and I'll come on to those that have been mentioned in the Q&A. But as I say, that general sell-off happened across real estate markets, albeit interestingly, there is an increase in M&A activity across the peer group. So some of you, for example, might have seen a few weeks ago, the announcement that Prologis, a big U.S. owner of industrial warehousing has made an offer for Segro, sort of the biggest of the London listed REITs. Segro share price only a few weeks ago was trading at a similar discount to where we are today. And the bid from Prologis is effectively at NAV. Now who knows whether that deal will progress, but it does illustrate that actually it was a sector-wide phenomenon. Now two companies that people have called out, one being AW, one being custodian, you are right to call out that their ratings have held. There will be different reasons for that. But one of the key reasons particularly for those two companies is they do have a higher proportion, a very high proportion of retail investors through platforms. And obviously, we've been working hard ourselves to ensure that we have a more diverse shareholder register of those traditional wealth managers, but also those retail platform investors. And companies that have a higher proportion of retail platform investors have tended to have a higher rating as the sort of more institution or wealth managers over that period of market instability have sold. So I think there are reasons, if you look at the underlying registers, why some of the companies have behaved differently. And again, we would argue that buying our shares at a 24%, 25% discount is better value than buying some of those other companies at or close to NAV. I'd also say, and again, when we're having one-on-one discussions with shareholders, I think looking under the bonnets of these companies is really important. We do believe that although we are looking at a market recovery into '27, more sticky inflation will lead to rates remaining higher for longer. And in our case, we don't have the refinancing risk that some in the peer group, some of the names mentioned, do have towards '26 and '27. So yes, we have sold off, but we would still argue that we have good fundamentals, and therefore, we do represent good value. Now moving into the Picton. And I think there's one question here, which I think, is important. How will we decide who gets what assets in relation to Picton, and we have set this out within the 2.4. And I think that question was also partly borne out of our consortium partner being much bigger. So obviously, LondonMetric Property, one of the very large London listed REITs, who were also a shareholder, as you know, in SREIT. Now I can give you reassurance that actually the way the assets have been allocated was in no way sort of picking. It was driven entirely by loan pools. So the Picton portfolio of the company has essentially 2 principal loan facilities, one to Canada Life, the same lender as us, one to Aviva. Now the Canada Life facility holds Picton's biggest asset, well over GBP 100 million in terms of value, too big for us together with a tail of assets within that same Canada Life portfolio. And so that portfolio has naturally gone to LondonMetric, and we have taken the other half of the portfolio or just over half of the portfolio where it continues to be complementary to our portfolio weighting above average industrial, retail warehousing, below benchmark office exposure. So when we put those together, both from a portfolio weightings perspective, but also from an income perspective, we believe that it is complementary. And again, we have had questions obviously around the impact on earnings. I just go back to restating what we said in terms of M&A principles that any growth that we and the Board come forward with must deliver material and near-term earnings accretion. And the Board, and we will only proceed with the Picton transaction if the combined could ultimately support a more resilient and ultimately higher dividend profile over time. And our aim will be to state more detail in relation to that within 2.7 announcements. Now linked to the 2.7 announcement, we've been also -- we've also been asked about timing. we haven't confirmed a date by which we're looking to complete the transaction. Suffice to say, people are going on holiday in August, I hope. And so our aim would be that we are able to close the deal before our advisers and ourselves go on holiday. So watch this space. We're working very hard to deliver something which we have real conviction is in the interest of our shareholders, including ourselves. Right. Let me just go through. So a lot of these questions are variations on a theme. So I think Bradley, there's a question just in relation to disposals, Bradley. Noting, I think you showed a [ disposal ] at a 30% below book value. Were there some exceptional circumstances with this property compared with some of the other sales? Do you want to just take that point?

Yes, sure. So typically, when we're selling assets, we try to sort of complete a business plan. So we'll try to maximize the value that we receive on sale. So whether that's a regear with a tenant or a refurbishment or repositioning, something like that. And that's what we've typically been able to do. Now with the asset in Liverpool, we did regear. So the asset in Liverpool had a bank on the ground floor and then was -- had uppers above, we call it, so basically office space above. Now the bank was Lloyd's and we regared with them a couple of years ago. And -- but what we found was the retail pitch in Liverpool moved. So there was a risk that Lloyds wouldn't regear again in the future. And the occupier preferences in terms of office space also evolved post-COVID. So we thought that it was best to get out of the asset, and we did have to take a reduction in book value for that, but we think overall, the portfolio is stronger for it. It's quite unusual for us to have to do that. As I noted, four of the assets were above book value. One of them was 25,000 below book value, so very, very marginal and Liverpool was an exception. And as I said, very unusual. But overall, we think that was the right decision.